INTER-GENERATIONAL ROLLOVER OF FARM OR FISHING ASSETS

Many farming and fishing assets are eligible for transfer from parent to child at values between cost and fair market value (FMV). Such transfers can occur during the owner’s lifetime (Subsections 73(3.1) and (4.1)) or as a consequence of death (Subsections 70(9.01) and (9.21)).

reviewing ongoing eligibility for flexible business transfers

Property eligible for such flexibility can include land, depreciable property, an interest in a family farm or fishing partnership, or shares of a family farm or fishing corporation. Usage tests apply to determine whether any given property is eligible. Shares and partnership interests are subject to asset tests requiring all or substantially all assets be used in farming or fishing operations.

In a February 8, 2018 Technical Interpretation (2016-0670841E5, Mathanda, Tara), CRA discussed such transfers in the context of an individual who owned multiple farm properties and farm corporations.

CRA indicated that their interpretations were the same whether a transfer occurred during the owner’s lifetime or as a consequence of death.

CRA then noted that it was a question of fact whether property was used principally in the course of carrying on a farming business. Such use is required to qualify directly held land or depreciable assets for the rollover. All or substantially all property of a corporation (or partnership) must meet this same usage test for shares (or partnership interests) to qualify.

these criteria for determining whether an individual is actively engaged in a business on a regular and continuous basis

Further, CRA indicated it is a question of fact whether a person is actively engaged on a regular and continuous basis in the farming business. CRA indicated this test could be met either by being actively engaged in management or in day-to-day activities of the farming business. Ordinarily, the person would be expected to contribute time, labour and attention to the farming business to the extent that their contributions would be determinant in the successful operation of the business.

CRA indicated that ownership of multiple properties would not prevent the rollover. Further, they stated that work on more than one farm would not, in and of itself, prevent someone from being actively engaged on a regular and continuous basis on any of the farms. However, CRA noted that each property would have to be considered separately to determine whether all relevant criteria were met.

Editors’ Comment
While directed at the specifics of the farm rollover provisions, it seems reasonable that these comments could also be relevant in assessing whether a person is actively engaged, on a regular and continuous basis, in any business. This could be relevant, for example, in determining whether an individual’s activity is sufficient to render a business an “excluded business” for purposes of the proposed tax on split income rules (see VTN 437(5)).

Note that CRA did not discuss eligibility of property for the capital gains exemption (Section 110.6) where similar, but not identical, criteria apply.

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